The Real Total Cost of Engagement in Outsourced Software Projects

Offshore outsourcing vendors like to highlight hourly rates because they sound pretty low when compare to the equivalent rate for US-based engineers. But that is far from the reality of the Total Cost of Engagement (TCE), which is what you are going to end up paying.

To the cost of the engineering talent you must add the cost of additional management, travel costs, the painful cost of staff turnover, and a certain amount of productivity loss due to the distance and degraded communications.

Total cost of engagement in software development industry

Engagement Manager

No matter what the size of the project, you need to have a US-based manager in charge of the outsourced project to keep track of every aspect of it and to make sure that everybody is in sync. This is true regardless of the outsource locale, be it offshore, nearshore or onshore.

us based engagement manager

Tech Leads

You need to have a technical lead for every five or six offshore engineers. These leads act as the bridge between the offshore and US teams and must, therefore, work a shift that overlaps both teams. They must be senior enough to be able to track the work done by both teams without becoming a burden to either team. They must also understand the implications of daily decisions, and be able to clarify any misunderstandings before they create a crisis.

one tech lead for every 6 offshore engineers

Tech Leads

Without the appropriate talent in this role, a few things are likely to happen,

  1. The teams will play email ping-pong, sending questions and counter-questions back and forth. One team will ask a question today only to get a request for clarification to the question the next day.
  2. As the email trail grows longer and more frustrating, after a while, the teams will quietly detach from one another, making more and more local decisions without closing the loop with the other.
  3. The work of each team will eventually divert from the other and by the time anybody notices, it may be too late.

email ping pong

Staff turnover

An ugly, unspoken component of the overall cost is staff turnover. Losing an engineer means that you’ve lost all the training you invested in him/her and now you have to spend time and money to find and interview a replacement. Then, you have to train the replacement.

This is very negative for team morale, for both the offshore team and the US-based team.

software development staff turnover

Productivity Loss

For every three engineers in India, expect the output of two US-based engineers. There are plenty of great engineers the world over and particularly in India, but most of the people your outsourcing vendor will attract (and retain) will be entry level people with modest skills.

productivity loss between outsourcing teams

Travel

Two words: expensive and grueling. But it’s absolutely necessary.

The engagement manager must visit the remote site at least once every six months. Lots of thing can change in that time and it may be very costly not to take a look for yourself on a regular basis.

As of the time of this writing, a trip to Bangalore cost $1,700. Coach. Without delays, the trip takes 22 hours (which you won’t want to do in coach class a second time). For less time and money you could travel every other month to Mexico. Without the jet lag.

travel is expensive and grueling but necessary
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